Global oil prices surge amid escalating Middle East tensions

oil refinery project

WEB DESK: Oil prices experienced an increase of approximately 1 per cent on Tuesday, with investors closely monitoring the implications of escalating tensions in the Middle East.

Brent crude futures saw a gain of 81 cents, representing a 1.04 per cent increase, reaching $78.96 per barrel at 1333 GMT. This followed a marginal loss of 14 cents recorded on Monday.

US West Texas Intermediate crude also witnessed a positive trend, rising by 41 cents, or 0.56 per cent, from Friday to $73.09 per barrel. Notably, US markets were closed on Monday due to a public holiday.

The heightened conflict in the Middle East, coupled with the resultant increased volatility in oil futures, captured the attention of market participants on Tuesday.

Craig Erlam of OANDA remarked, “The brief spikes we’ve seen have highlighted the sensitivity in the market to events around the Red Sea.”

On Monday, Yemen’s Houthi movement announced its intention to broaden its targets in the Red Sea region, specifically including US ships, and vowed to persist with attacks following US-led strikes in Yemen.

A missile struck a Malta-flagged bulk carrier off Yemen on Tuesday, leading to a growing number of oil tankers diverting from the southern Red Sea. NYK, Japan’s largest shipper, informed Reuters that it has instructed all vessels not to use the Red Sea.

Shell, a prominent oil major, reported the indefinite suspension of all shipments through the Red Sea after last week’s strikes, as per the Wall Street Journal.

Simultaneously, tensions escalated in other parts of the region, with Iran announcing the launch of ballistic missiles at targets in Iraq and Syria on Tuesday. The move was framed as a defence of Iran’s sovereignty and a counter-terrorism measure.

Analysts emphasised that the geopolitical risk premium on oil prices may be capped unless there is a tangible impact on production.

PVM analyst Tamas Varga said that the absence of an actual and palpable impact on oil output, prices will remain well within the current $72-$82 range.

Investor attention also turned to a scheduled speech by Christopher Waller of the US Federal Reserve at 1600 GMT on Tuesday, anticipating insights into the Fed’s potential interest rate adjustments.

While expectations of European Central Bank interest rate reductions persist, policymakers have refrained from providing definitive statements on the timing of such cuts.

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